The controversy on the Social Security System (SSS) pension hike highlights the predicament that many retired pensioners face: the struggle to make do with so little in exchange for paying so much. The amount of the retirement benefits simply could not catch up with the rising cost of living.
The initial increase of P1,000 per month in pension mandated by President Duterte, albeit relatively small, is a welcome relief for many retirees. At the same time, however, it is estimated that this will exhaust the life of the fund by 2042-2025, which means that thereafter, pension benefits would have to be stopped. One can just imagine the social unrest that will most likely result from the debacle.
This pension hike debate would not have been so heated had the public been given alternative means of funding their retirement.
The Personal Equity and Retirement Account (Pera) under Republic Act No. 9505, principally authored by the Angara father-and-son tandem in Congress, is supposed to be an alternative source of retirement funds.
Pera was established to help people save for their personal retirement and, at the same time, develop our capital market by encouraging investments.
Pera works similar to other private investment schemes, such as mutual investment funds or pre-need insurance plans. It is voluntary on the part of the contributor.
To achieve Pera’s policy objectives, the law gives tax and non-tax incentives. A contributor is given a tax credit of 5 percent of the total Pera contribution (up to a maximum contribution of P100,000 or P200,000 for overseas Filipino workers per year) to his or her income tax. In addition, the income derived from such investment is tax-exempt.
Also, private employers who contribute to the Pera account of their employees can claim a tax deduction from their gross income. On top of that, Pera assets are beyond the reach of the courts and contributor’s creditors.
However, unlike other types of investments, the contributor may only withdraw or receive pension from his Pera upon reaching 55 years old (if he or she has contributed for the last 5 years). But considering that Pera is meant as a retirement fund, this is an acceptable, if not a necessary, restriction.
A much earlier implementation of Pera would have been ideal. The law took effect on Jan. 1, 2009. The Bangko Sentral ng Pilipinas (BSP) released the implementing rules of the law in October that same year, but the Bureau of Internal Revenue under the previous administration, which took issue with the tax incentives provided by the law, released the rules on the tax aspect only in October 2011. What a myopic and shortsighted way of looking at things, indeed.
Contributors who were 50 years of age in 2009 would have already been eligible to withdraw or receive pension from their contributions. Perhaps the SSS pension hike issue would not have been so contentious as it is now had the Pera Law been implemented much earlier.
In fact, one of the primary aims of the Pera Law was to reduce the pressure on social pension by making the public less dependent on the SSS and the Government Service Insurance System.
The intent of the Pera Law was finally rolled out on Dec. 16, 2016 by our hardworking BSP, which invested millions of pesos and manpower resources to operationalize it. Our banking industry, led by BDO Unibank, Bank of the Philippine Islands, Land Bank of the Philippines and Rizal Commercial Banking Corp., have committed its support.
As a principal advocate for the enactment of the law (it was one of the five capital market-related laws I helped put in place during my Philippine Stock Exchange days), I hope that it will work as envisioned. By faithfully implementing it, our retirees will rely less on their SSS or GSIS pension, which will definitely help ease the pressure to increase pension benefits and consequently avoid havoc on our pension funds.
The author is a senior partner of the Angara Abello Concepcion & Regala Law Offices.
The views in this column are exclusively his. Contact him at francis.ed.lim@gmail.com.